Isle solar-power firm lands $678M deal

The $678M deal with a Chinese firm bolsters Hoku Scientific

Hoku Scientific, marking another milestone in its migration toward solar-power technology, has signed a contract worth up to $678 million with Suntech Power Holdings Co. Ltd. of China, the third-largest solar-cell maker in the world.

The 10-year deal gives Kapolei-based Hoku more than $1 billion in contracts for polysilicon from its $260 million factory under construction in Pocatello, Idaho. Polysilicon is a key component in photovoltaic cells, which generate electricity from sunlight.

Investors embraced the news, which came after the market closed yesterday, and the stock soared in after-hours trading.

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Hoku Scientific Inc., scoring its largest deal yet since transforming itself into a supplier to solar-panel makers, said yesterday it has signed a contract with a China-based company that is worth up to $678 million.

The 10-year deal with Suntech Power Holdings Co. Ltd., the third-largest solar-cell maker in the world, gives subsidiary Hoku Materials more than $1 billion in contracts for polysilicon from the factory Hoku is building in Pocatello, Idaho. In January, Hoku signed a $370 million, seven-year supply contract with Osaka, Japan-based Sanyo Electric Co. Ltd.

"Amazing," said Piper Jaffray & Co. analyst Jesse Pichel, who has an "outperform" rating on the stock.

The announcement, which came after the stock market closed yesterday, catapulted Kapolei-based Hoku's stock up 73 percent in after-hours trading to $7.95 and as high as $8.62. The stock, which trades on the Nasdaq Stock Market, had ended the regular session up 2 cents at $4.60. It began the year at $2.61.

Suntech, which also is publicly traded, is expected to sell solar cells with output totaling 325 megawatts this year and generate revenue of more than $1 billion, according to Pichel.

"Securing a long-term supply of polysilicon from Hoku will enable us to continue to expand our manufacturing capacity and execute on Suntech's strategic plan," Suntech Chairman and Chief Executive Zhengrong Shi said in a statement.

Dustin Shindo, chairman, president and CEO of Hoku Scientific, called the Suntech deal "a significant milestone."

"It shows that we're executing our company's strategy successfully. We take pride in the fact that a Hawaii-based company is able to compete in a very global industry."

Shindo said Hoku, which has a market cap of about $76 million, "can't stop to celebrate our milestones too much" because of all the work that remains to be done with the Idaho plant. Construction of that plant is scheduled to be completed in the second half of 2008 and begin deliveries of polysilicon in the first half of 2009. The new plant will be capable of producing 2,000 metric tons of polysilicon per year.

Pichel cautioned investors about purchasing the stock today after what is expected to be a significant price run-up and because of the "substantial risk" in possible delays in building the $260 million plant. He also said that Hoku still needs to secure $150 million in debt financing.

Still, coupled with the January Sanyo deal, Hoku has obtained $160 million of upfront payments contingent upon reaching various milestones.

"If we value Hoku in line with other polysilicon companies, (Renewable Energy Corp.) and (MEMC Electronic Materials Inc.), this would indicate a stock that is six to 12 times higher than it is now (at yesterday's opening price of $4.63)," Pichel said. "However, Hoku has substantial execution risk and has to be discounted accordingly."

That said, Pichel added that he wouldn't put it past Hoku to pull it off.

"Polysilicon solar investors are cautious that the industry is building too much capacity, and they point to all of these plants in China that we think are nothing more than press releases outside of a few legitimate plants," Pichel said. "At the same time, they make fun of Hoku since it has somewhat of a funny beginning, as a fuel-cell company that now has become a solar company. But if you look at the backgrounds of these Chinese companies, they weren't even in the renewable markets for the most part. Hoku has a much better chance of success because it has secured proven technologies and engineering firms while the Chinese companies do not."

Hoku's contract with Wuxi, China-based Suntech calls for the delivery of predetermined volumes of polysilicon each year at set prices beginning with the first shipment in 2009 and continuing over a 10-year period. Under the contract, Suntech is required to pay an initial deposit of $2 million to Hoku upon signing and requires that Suntech make additional prepayments on an installment basis for products in the amount of $45 million as long as certain milestones and conditions are achieved.

HOKU FINDS THE SUN

Kapolei-based alternative-energy company Hoku Scientific formed in 2001 to develop fuel cells. But last year it refocused on a different technology -- solar-electric panels.

May 2006: Announces solar-power venture

January 2007: $370 million contract from Sanyo Electric of Japan

March 2007: Breaks ground on Pocatello, Idaho, site of solar-materials factory

May 2007: Picked for Hawaiian Electric's first large-scale solar-power installation